Nike

Nike, Inc.

The Main Issues

Nike, Inc. (which will be further referred to as Nike throughout this analysis) has some interesting challenges ahead of itself in the coming years should it hope to achieve its revenue and earnings growth targets. Investing in Nike carries the following concerns.

1. The financial health of Nike represents the most important factor before investing. We have calculated many financial ratios using past data.

2. The market share price of Nike must be estimated correctly to properly estimate growth opportunities. We have calculated our weighted average cost of capital to reflect current market share prices.

3. Finally, Nike’s future growth and expansion plans will reveal whether or not they are successful in the future. We have analyzed their plans and have come to conclusions on whether or not we view them as profitable business decisions.

Quantitative Analysis

According to the assumptions made in exhibit 5, we have calculated WACC for 2000.

2000 2001

C/L 50.1 5.4

N/P 924.2 855.3

L/T debt 470.3 435.9

Total 1444.6 32% 1296.6 27%

Equity 3136 68% 3494.5 73%

Total 4580.6 47911.1

WACC=2.7% x 32% + 10.5% x 68% = 8%

By comparing the WACC in 2000 and 2001, there is 0.4% increase for cost of capital for Nike. It shows there is a slight increase on expected return of Nike. Plus, the debt taken on by Nike had been declining from 2000 to 2001, while an increase on equity had been shown.

Table 1.1

Key Financial Ratios for Nike in past two years

2000 2001

Efficiency

Return on assets 16.81% 17.43%

Return on equity 18.46% 16.87%

Margins

Net profit margin 6.44%...